Friday, 8 November 2013

The High Growth Challenge

Growing a business is a challenge in its own right,
growing a business in an environment of
high growth is doubly difficult. To get an idea of just how difficult
that is you only have to look at how few businesses manage to sustain high
growth (20%pa) over say 4 years; and what a tiny percentage of those will
achieve this state for a decade. So be under no illusion sustaining high growth is a major challenge.

So what makes it so difficult? It is my contention that
too many businesses focus on the wrong issue. In any business there are two
basic components that need to grow together sales and the organisation. Sales
is the easy bit. OK so thats a bit of an oversimplification. Growing sales is
tough, how tough, depends to a significant degree on market growth. It is self
evident that its harder to achieve high growth in a slow growing or even
stagnant market compared to a market which is also in high growth. Some might
even say that growing at 35% when your market is growing at 50% is actually
under-performing. However too many so called growth experts focus on sales and
marketing because thats the key driver. Absolutely true. What sustains high
growth, however, is matching organisational growth to support sales growth and
thats a whole different order of difficult.

Why is it so difficult? Firstly, because it involves
managing multiple disciplines successfully not just one. Further these
different functions have to, as far as possible, be kept in balance along the
way. In addition the matching of organisation to sales has to be close enough
to allow the business to make a profit sufficient to allow it to reinvest in
maintaining growth. This is because for the most part businesses have to rely
on their own cash generation to fund growth. There businesses that generate
extra ordinary growth but this usually only possible because they have access
to extra ordinary amounts of cash. Those cases aside it's up to the business
owner to fund his own growth.

To illustrate this in a different way, let's use the
analogy of a hammer thrower. At its basics you pick up the hammer rotate across
the circle and hurl it into the distance. In reality it is a very technically
demanding sport. The key to success is to remain in control even though your
rotate faster and faster across the circle before launching the hammer into the
distance. In order to be successful the hammer thrower needs to stay ahead of
the hammer. This means that the hammer stays slightly behind the throwers
rotation so that they retain control. If however the hammer gets ahead of the
thrower then control switches immediately from the thrower to the hammer as
they are in effect being pulled around by the hammer. The result is that the
subsequent throw is out of control and either it crashes into the side netting or
if by chance it does make the opening it has no great distance or direction.
The problem for the hammer thrower is that if the hammer gets ahead of him it
is impossible to slow the ball down a little bit to get back in control.
Slowing down inevitably results in sufficient loss of momentum for the hammer
to just falls to the ground. If we read sales growth for the hammer and
organisational growth for the thrower we can see that if organisational growth
falls behind sales growth the only way for the position to correct itself is
for sales growth to slow. The problem is, that like the hammer falling to the
floor, sales growth tends to stall completely.

This common occurrence is evidenced by what I call "shooting star" businesses that
shine brightly, for a brief time then
disappear. These are businesses that grow very rapidly for a year or so but
then the wheels come off management spends the next year to 18 months clearing
up the mess. Significantly this experience is so painful that the
business often makes a conscious decision to avoid high growth in the future.

Secondly, it requires a very broad range of business
knowledge and expertise. Its something that few business owners are aware of,
especially in the early stages when often they are struggling to make the mind
shift from being an exponent of what they do to being the MD of a business that
provides those products or services Even
if they are aware of it few business owners have thought about managing the
impact of growth or assessing the interconnections between functions which
accentuate both good and bad decisions. I've put them into seven areas. They
are:

Vision, Culture, Strategy and Planning, Talent
Management, Financial Management & Control, Business Processes and Business
Development. The first are about leadership and infrastructure. The other 5 look
at key business activities but will be much more effective if the
infrastructure is in place.

The challenge for a business in maintaining high growth is to grow the organisation consistently over time to match sales. In supporting businesses to understand and undertake this challenge in a knowledgeable way we are much more like to provide sustainable high growth businesses.